Summers Value Partners, an investment management firm, published its ‘Summers Value Fund LP’ fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A net return of 14.7% was recorded by the fund for the Q4 of 2020, below its Russell 2000 benchmark that returned 18.40%. You can view the fund’s top 10 holdings to have a peek at their top bets for 2021.
Summers Value Partners, in their Q4 2020 Investor Letter said that they continue to see material upside in Electromed, Inc. (NYSE: ELMD) because they believe that the company represents an attractive takeout candidate at its current price. Electromed, Inc. is a medical device company that currently has a $85.7 million market cap. For the past 3 months, ELMD delivered a decent 15.81% return and settled at $9.96 per share at the closing of January 27th.
Here is what Summers Value Partners has to say about Electromed, Inc. in their investor letter:
“Electromed is a medical device company that manufactures and sells the SmartVest. The SmartVest is a percussive therapy used to treat a variety of pulmonary diseases including bronchiectasis and cystic fibrosis. We have owned shares of Electromed since our launch, and it continues to be a prominent position in the portfolio. Like most companies, Electromed was negatively impacted by the COVID-19 pandemic in 2020. Sales have declined year-over-year in recent quarters driven primarily by reduced hospital system sales along with lower home care sales. However, the Medicare waiver implemented in 2020 has helped to sustain or improve patient access during this period, and the waiver was recently extended into April. Despite the pandemic pressures on the business, management has continued to generate profits and cash flow. As a result, we expect the company to end 2020 with roughly $13.5 million in cash (against zero debt), which represents 15% of the market cap.
Electromed has been spending heavily on R&D in recent quarters, which we fully support as the company positions itself for future growth. The company has historically spent between 1-2% of sales on R&D, but R&D spending has increased to 5-6% of sales in recent quarters. We expect to learn more about the next generation SmartVest product in the year ahead with an expected launch in the second half of 2021. The launch of a next generation SmartVest along with sales force expansion and the re-opening of pulmonology clinics should give the company the ability to grow revenues well over 10% exiting the pandemic period. Over the long term, we see a path to sustainable double-digit revenue growth propelled by high single digit market growth, share gains and deeper penetration into the bronchiectasis market.
We continue to see material upside in Electromed’s shares. The stock screens as attractive relative to a peer group of small-cap medical device stocks. Electromed trades at 2.2x enterprise value to current year sales while a peer group of ten companies trades at a mean enterprise value to current year sales of 5.6x. Within the peer group, Electromed is one of the few companies that has consistently generated profits and positive cash flow, and it features one of the highest gross margins at 77%. Our discounted cash flowbased price target is $17.50 per share. We also believe the company represents an attractive takeout
candidate at the current price.”
Last December 2020, we published an article telling that Electromed, Inc. (NYSE: ELMD) was in 6 hedge fund portfolios, its all time high statistics. ELMD delivered a 2.79% return in the past 12 months.
Our calculations show that Electromed, Inc. (NYSE: ELMD) does not belong in our list of the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website.
Disclosure: None. This article is originally published at Insider Monkey.